KUALA LUMPUR (Jan 30): Petronas Gas Bhd (PetGas) expects the impact of the lower tariffs to be partly mitigated by Tariff C and revenue adjustments, said CGS-CIMB following the group’s briefing on Incentive-Based Regulation (IBR) Regulatory Period 2 (RP2, 2023-2025) tariffs on Jan 27.
The research firm noted that the fluctuations in gas prices and foreign exchange (forex) movements will be fully passed through via annual tariff adjustments under RP2.
“Our sensitivity analysis reveals that PGB's (PetGas') FY2023-2025 regulated earnings could decline by 2%-3% due to lower tariffs for PGU (Peninsular Gas Utilisation) and RGTP (Regasification Terminal Pengerang),” it said, maintaining its “hold” call on the stock with a target price of RM16.90.
To recap, RP2’s base average tariffs affecting PetGas are: Peninsular Gas Utilisation (PGU) of RM1.063/GJ per day (versus RM1.129/GJ per day previously), Regasification Terminal Sg Udang (RGTSU) unchanged at RM3.455/GJ per day, and Regasification Terminal Pengerang (RGTP) at RM3.165/GJ per day (versus RM3.485/GJ per day previously).
“We gather the lower RP2 base average tariffs for PGB due to lower regulated return could be partially mitigated by revenue adjustments (forex and gas price) for its regulated facilities, and approval of Tariff C under PGU,” added CGS-CIMB.
CGS-CIMB said the internal gas consumption cost will be fully passed through to shippers under RP2, unlike RP1 where PetGas needed to absorb gas price fluctuations after exceeding a certain budget.
The research firm said PetGas’s RP2 regulated capital expenditure (capex) is guided to be above RM2 billion where the bulk of the capex is allocated to PGU, which is significantly higher than RP1.
“PGB did not disclose its RP2’s regulated return but guided that it is similar to the other utilities players under regulation,” said the research house.
CGS-CIMB said the annual tariff has been adjusted to reflect forex/gas price changes.
It noted Tariff C (RM0.553/GJ per day) is the regulated tariff for the delivery of gas with higher pressure via PGU II Sector 3 Project Compressor Relocation (SCORE), with an estimated capacity of 200 mmscfd.
“We gather that overall revenue reduction from PGU under RP2 will likely come to only 2% instead of 5.8% versus RP1, due to the introduction of Tariff C.
“For regasification facilities, the forex movement will be passed through via adjustment on assets value to negate the impact of lower regulated return. We gather the Energy Commission (EC) will have annual tariff adjustments under RP2 to reflect changes in forex and gas prices to mitigate the risk of fluctuations in PGB’s operational expenses,” it added.
CGS-CIMB said its sensitivity analysis reveals that PetGas’s FY2023-2025 forecasted regulated earnings could decline by 2%-3% on lower tariffs for PGU and RGTP, which are reflected in its previous forecasts.
Nonetheless, it added FY2023’s forecasted core net profit is expected to be stronger versus FY2022 due to absence of one-off prosperity tax (Cukai Makmur).
It maintained its “hold” call, given the expected weaker FY2022-2024 forecasted earnings versus FY2021 due to Cukai Makmur and in FY2023 arising from incentive-based regulation (IBR) RP2 (2023-25).
Meanwhile, it said PetGas’ dividend yields of more than 4% for FY2022-2024 will likely provide support to its share price. It added key risks to its projection are lower- or higher-than-expected earnings following the IBR tariff revision.
Source: TheEdge - 31 Jan 2023
